VA Loan Facts About Short Sales
When a borrower gets into financial trouble and has difficulty making VA loan payments, sometimes the only alternative to foreclosure is something called a short sale–where the borrower sells the home for less than it is worth or less than is what is actually owed on the property.
A borrower has the right to sell the home at any point during the foreclosure process, which makes the short sale more attractive to some–the borrower who feels it’s better to sell short than go into foreclosure may choose this option as long as he or she legally owns the home.
In these situations, there are several options. One is called a VA compromise claim. According to the VA, “If your property cannot be sold for an amount which is greater than or equal to what you owe on the loan, VA may pay a ‘compromise claim’ for the difference to help you complete the sale. You must contact VA to discuss the situation and get prior approval for a sale with a compromise claim payment. Some mortgage companies are authorized by VA to approve a sale with a compromise claim.”
A short sale is definitely a way to avoid foreclosure, but that doesn’t mean a short sale won’t affect your credit score. Unfortunately short sales do lower credit scores in many cases, and there may be a “seasoning period” borrowers must wait out before they are allowed to apply for another home loan. In this respect, short sales (where VA loan delinquency is involved) resemble bankruptcy filings; though the effects on a credit rating may not be the same, a waiting period applies.
Those who have had VA loans in the past, experienced financial trouble and resorted to a short sale are not locked out of the housing market. If you have waited out the minimum period following a short sale with delinquent payments, and have a record of dependable payments since that time and other typical VA loan qualifying factors, you may be eligible to begin the VA loan process again.